<PAGE>
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MAIRS AND POWER
GROWTH FUND, INC.
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1ST QUARTER REPORT
March 31, 1998
May 27, 1998
To Our Shareholders:
On March 31, 1998, the net asset value per share of Mairs and Power Growth
Fund was $93.86, an 8.3% increase from the year-end valuation. This compares
with returns of 13.9% for the Standard and Poor's 500 Stock Index and 11.7% for
the Dow Jones Industrial Average. For the three year period ended March 31,
1998, the Fund had an average annual return of 33.2% which compares with returns
of 32.8% for the Standard and Poor's 500 Stock Index and 27.3% for the average
domestic growth fund. In a study of mutual funds' performance by
CDA/Wiesenberger, the Fund ranked 55 out of 705 growth funds for the three year
period. The WALL STREET JOURNAL, in its quarterly review of Mutual Funds,
compiled a list of the 50 best performing stock funds for the past five and ten
year periods. Mairs and Power Growth Fund was one of six diversified stock funds
to appear on both lists. FORBES magazine, in the February 9 issue, presented its
semi-annual survey of mutual funds. Mairs and Power Growth Fund was one of
twelve U.S. stocks funds designated Best Buys based on superior risk-adjusted
performance coupled with low operating costs.
The U.S. economy has now entered its eighth year of expansion, placing it
amongst the three longest such periods on record. The expansion continues to be
extremely well balanced with virtually every sector of the economy performing
well. During the first quarter, GDP rose at an annual rate of 4.2% while
inflation remained at a scant 1% rate. The unemployment rate declined to 4.3% in
April and the rate for college educated workers was a mere 1.5%. While labor
markets are very tight, wage increases continue to be moderate and largely
offset by productivity increases. Perhaps the best news is the fact that the
federal budget is now in surplus for the first time since 1969 and the surplus
could well exceed $50 billion for the fiscal year ending September 30, 1998. The
Office of Management and Budget projects a total surplus of $495 billion over
the next five years. This is a very positive development for the financial
markets because it should remove upward pressure on interest rates and could
well permit rates to decline in the years ahead.
The stock market has continued to rise this year as a result of the very
favorable economic environment. The two major factors driving the market over
the balance of this year will be investor views concerning interest rates and
corporate profits. We believe that the Federal Reserve is likely to maintain a
neutral stance relative to interest rates due to the absence of inflationary
pressure. We also believe that corporate profits will show moderate improvement
throughout the year. The United States has firmly re-established its position as
the world's most competitive economy which has enhanced the ability of U.S.
companies to prosper in world markets. Stocks are currently trading at about 22
times 1998 earnings. We believe this level is appropriate based on our view that
both the economy and profits will continue to expand in 1999. Therefore, we
maintain our positive outlook on the prospect for stock prices. However, we
believe that the market will be subject to periodic corrections that will
sustain the higher level of volatility that has characterized market activity
over the past eighteen months.
George A. Mairs
<PAGE>
SCHEDULE OF INVESTMENTS AT MARCH 31, 1998
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<TABLE>
<CAPTION>
NUMBER OF
SHARES COMMON STOCKS MARKET VALUE
- --------- ------------------------------------------ ------------
<C> <S> <C>
CHEMICAL 5.2%
500,000 Ecolab, Inc. $14,500,000
207,500 H. B. Fuller 12,424,063
------------
26,924,063
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CONSUMER 10.3%
83,000 Darden Restaurants 1,291,687
217,000 General Mills, Inc. 16,492,000
390,000 Hormel Foods 15,136,875
372,610 Jostens, Inc. 8,942,640
315,800 The Toro Company 12,099,088
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53,962,290
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DRUGS AND HOSPITAL SUPPLIES 9.1%
252,000 Baxter International, Inc. 13,891,500
195,000 Johnson & Johnson 14,295,937
196,000 Pfizer Inc. 19,538,750
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47,726,187
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FINANCIAL 15.8%
450,000 Norwest Corporation 18,703,125
270,000 ReliaStar Financial Corporation 12,436,875
163,000 St. Paul Companies, Inc. 14,527,375
530,000 TCF Financial Corporation 17,986,875
150,000 U.S. Bancorp 18,712,500
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82,366,750
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INFORMATION SERVICES 8.6%
390,000 Deluxe Corp. 12,845,625
825,000 Merrill Corporation 18,150,000
628,400 National Computer Systems Inc. 14,139,000
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45,134,625
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MEDICAL DEVICES 5.6%
346,000 Medtronic, Incorporated 17,948,750
335,000 St. Jude Medical, Inc.* 11,201,563
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29,150,313
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RETAILING 5.3%
184,000 Dayton Hudson Corporation 16,192,000
244,000 SUPERVALU Inc. 11,376,500
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27,568,500
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TECHNOLOGY 16.5%
230,000 Ceridian* 12,405,625
278,050 Emerson Electric Co. 18,125,384
220,000 Honeywell Inc. 18,191,250
917,100 MTS Systems Corporation 14,673,600
193,000 Minnesota Mining & Manufacturing Company 17,599,187
578,500 T S I Inc. 5,061,875
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86,056,921
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TELECOMMUNICATIONS 2.8%
539,000 ADC Telecommunications Inc.* 14,856,188
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OTHER INDUSTRIALS 15.3%
344,000 Bemis Company, Inc. 15,523,000
654,800 BMC Industries, Inc. 12,727,675
150,000 Burlington Northern Santa Fe 15,600,000
418,350 Graco Inc. 12,681,234
355,800 Imation Corporation* 6,582,300
300,000 Weyerhaeuser Company 16,950,000
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80,064,209
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TOTAL COMMON STOCKS 94.5% $493,810,046
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OTHER ASSETS IN EXCESS OF LIABILITIES 5.5% 28,891,266
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NET ASSETS 100% $522,701,312
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------------
*Non-income producing
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS AT MARCH 31, 1998
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<TABLE>
<S> <C> <C> <C>
ASSETS
Common stocks as annexed, at market value (cost $333,842,983).................................... $493,810,046
Cash............................................................................................. 30,126,861
Dividends and interest receivable................................................................ 522,076
Receivables for securities sold, not yet delivered............................................... 0
Prepaid expense.................................................................................. 84,111
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$524,543,094
LIABILITIES
Accrued management fee.................................................. $ 257,295
Accrued custodian and transfer agent fee................................ 72,237
Payable for securities purchased, not yet received...................... 1,512,250 1,841,782
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NET ASSETS
Equivalent to $93.86 per share on 5,568,889 shares outstanding................................... $522,701,312
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------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS FOR THE THREE MONTHS ENDED MARCH 31, 1998
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<TABLE>
<S> <C> <C> <C>
NET ASSETS, December 31, 1998.................................................................... $412,590,619
Net investment income, per statement below.............................. $ 1,136,784
Net accrued income in price of shares sold and repurchased.............. (53,548)
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1,083,236
Reversal of Capital Gain Distribution Paid.............................. 3,038
Reversal of Dividend Reinvestment....................................... 1,258 1,087,533
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Fund shares issued and repurchased:
Received for 967,156 shares issued.................................... 86,087,040
Paid for 158,783 shares repurchased................................... (14,218,229) 71,868,811
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Increase in unrealized net appreciation (depreciation) of investments............................ 37,154,349
Net gain or (loss) realized from sales of securities............................................. 0
Distribution from net realized gain.............................................................. 0
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NET ASSETS, March 31, 1998....................................................................... $522,701,312
------------
------------
</TABLE>
STATEMENT OF NET INVESTMENT INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998
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<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................................................................ $ 1,699,094
Interest......................................................................................... 342,037
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2,041,131
EXPENSES
Management fee (Note A)................................................. $ 711,753
Fees and expenses of custodian, transfer agent and
dividend disbursing agent (Note A)..................................... 111,668
Legal and auditing fees and expenses.................................... 8,235
Insurance............................................................... 2,939
Other Fees and Expenses................................................. 69,753 904,347
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NET INVESTMENT INCOME............................................................................ $ 1,136,784
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------------
</TABLE>
NOTE A: The investment advisory fee was paid to Mairs and Power, Inc., which is
owned by individuals who are directors and officers of the Fund, for its
services as investment adviser. Investment advisory fees are paid to the adviser
pursuant to an advisory agreement approved by the Directors of the Fund. The
advisor fee is computed each month and is 1/20th of one percent of the net asset
value of the Fund on the last valuation day of the month. The transfer agent fee
was paid to Firstar Trust Company which serves as transfer agent.
SUPPLEMENTARY INFORMATION: 1) Each director of the Fund not affiliated with
Mairs and Power, Inc. received $-0-compensation for meetings attended during
this three month period. No compensation was paid to any other director or
officer of the Fund. 2) No provision has been made for federal income taxes as
it is the intention of the Fund to comply with the provisions of the Internal
Revenue Code available to investment companies and to make distributions of
income and security profits which will be sufficient to relieve it from all or
substantially all income taxes. 3) Purchases and sales of investment securities
during the three months ended March 31, 1998 aggregated $62,292,407 and $-0-
respectively.
<PAGE>
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MAIRS AND POWER
GROWTH FUND, INC.
---------------------------
A NO-LOAD FUND
W-1420 FIRST NATIONAL BANK BUILDING, 332 MINNESOTA STREET, ST. PAUL, MINNESOTA
55101
612-222-8478
SHAREHOLDER INFORMATION: 800-304-7404
SUMMARY OF FINANCIAL INFORMATION
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This table covers a period of generally rising common stock prices. The results
shown should not be considered as a representation of the dividend income or
capital gain or loss which may result from an investment made in the Fund today.
<TABLE>
<CAPTION>
PER SHARE
-------------------------------------------------
DISTRIBUTIONS DIVIDENDS
OF REALIZED FROM NET
SHARES TOTAL NET NET ASSET SECURITIES INVESTMENT
DATES OUTSTANDING ASSETS VALUE GAINS INCOME
- -------------------- ------------ ------------ ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Dec. 31, 1978 998,265 13,282,487 13.31 0.35
Dec. 31, 1979 914,635 14,104,765 15.42 0.45
Dec. 31, 1980 840,882 14,540,014 17.29 0.55
Dec. 31, 1981 861,678 13,148,158 15.26 $ 0.74 0.60
Dec. 31, 1982 850,942 16,784,217 19.72 0.58 0.50
Dec. 31, 1983 881,592 18,972,177 21.52 0.70 0.48
Dec. 31, 1984 872,069 17,304,204 19.84 0.76 0.46
Dec. 31, 1985 856,738 21,553,457 25.16 0.86 0.46
Dec. 31, 1986 893,850 22,235,453 24.88 2.74 0.40
Dec. 31, 1987 914,139 19,816,097 21.68 2.29 0.48
Dec. 31, 1988 929,039 20,630,251 22.21 1.21 0.41
Dec. 31, 1989 866,584 22,630,081 26.11 1.83 0.43
Dec. 31, 1990 867,432 22,501,587 25.94 0.70 0.42
Dec. 31, 1991 904,023 31,440,529 34.78 1.58 0.39
Dec. 31, 1992 956,814 34,363,306 35.91 1.16 0.40
Dec. 31, 1993 1,006,285 39,081,010 38.84 1.22 0.43
Dec. 31, 1994 1,064,019 41,889,850 39.37 0.98 0.65
Dec. 31, 1995 1,245,325 70,536,880 56.64 1.51 0.56
Dec. 31, 1996 2,161,246 150,161,759 69.48 1.39 0.71
Dec. 31, 1997 4,760,515 412,590,619 86.67 1.69 1.00
Mar. 31, 1998 5,568,889 522,701,312 93.86
</TABLE>
No adjustment has been made for any income tax payable by shareholders on
capital gain distributions accepted in shares.
This report is not to be used in connection with the offering of shares of the
Fund unless accompanied or preceded by an effective Prospectus. Please call or
write if you desire further information.
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
FUND (PERIODS ENDED MARCH 31, 1998) ARE AS FOLLOWS:
1 YEAR: +39.7% 5 YEARS: +25.2% 10 YEARS: +20.4%
PAST INVESTMENT RESULTS SHOULD NOT BE TAKEN AS NECESSARILY REPRESENTATIVE OF
FUTURE PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
OFFICERS AND DIRECTORS
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<TABLE>
<S> <C> <C> <C>
George A. Mairs, III William B. Frels Peter G. Robb Lisa J. Hartzell
President and Secretary and Vice-President and Treasurer
Director Director Director
Charlton Dietz Donald E. Garretson J. Thomas Simonet
Director Director Director
</TABLE>
